Aiming to ease the shortage of lendable fund in the banking system and also encouraging them to increase loans to the agriculture sector, Development Bankers Association Nepal (DBAN) has urged the central bank to allow the 'B' class financial institutions to deduct loans floated to agriculture sector in excess to the regulatory requirement in the credit to core capital plus deposit (CCD) ratio.
The CCD ratio is a prudential lending limit enforced by the central bank, restricting bank and financial institutions (BFIs) to lend more than 80 per cent of their combined capital and deposits.
The association submitting an 11-point suggestion to the Nepal Rastra Bank (NRB) – to address their problems through the monetary policy for next fiscal Year 2019-20 – also sought a relaxation in the way the CCD ratio is calculated. According to the suggestion of the association, agro loans exceeding the regulatory requirement should be allowed to deduct in the CCD ratio.
The development banks can disburse new loans equivalent to agro loans without mobilising new deposits even, if they are close to breaching their lending limit, if the measure is introduced, said development banks that are currently required to float at least 10 per cent of their loans in priority sector including agriculture.
“It will encourage development banks to help meet the government's target by increasing investment and lending in the agriculture sector,” reads the recommendations submitted to the central bank last week by the association that has also sought flexibility in deducting loans directly floated to deprived sector exceeding the CCD requirement, as well as the investment higher than the requirement in the cash reserve ratio (CRR) and statutory liquidity ratio (SLR).
The association has also recommended the central bank to increase the limit and maturity period of the refinance fund to ease the liquidity crunch and offer a respite to productive sector which has been facing shortage of loans.
The association has asked the central bank to increase the limit and maturity period of the refinance fund. The central bank currently provides refinance facility for up to six months.
The CCD ratio is a prudential lending limit enforced by the central bank, restricting bank and financial institutions (BFIs) to lend more than 80 per cent of their combined capital and deposits.
The association submitting an 11-point suggestion to the Nepal Rastra Bank (NRB) – to address their problems through the monetary policy for next fiscal Year 2019-20 – also sought a relaxation in the way the CCD ratio is calculated. According to the suggestion of the association, agro loans exceeding the regulatory requirement should be allowed to deduct in the CCD ratio.
The development banks can disburse new loans equivalent to agro loans without mobilising new deposits even, if they are close to breaching their lending limit, if the measure is introduced, said development banks that are currently required to float at least 10 per cent of their loans in priority sector including agriculture.
“It will encourage development banks to help meet the government's target by increasing investment and lending in the agriculture sector,” reads the recommendations submitted to the central bank last week by the association that has also sought flexibility in deducting loans directly floated to deprived sector exceeding the CCD requirement, as well as the investment higher than the requirement in the cash reserve ratio (CRR) and statutory liquidity ratio (SLR).
The association has also recommended the central bank to increase the limit and maturity period of the refinance fund to ease the liquidity crunch and offer a respite to productive sector which has been facing shortage of loans.
The association has asked the central bank to increase the limit and maturity period of the refinance fund. The central bank currently provides refinance facility for up to six months.
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